United States Trade Representative (“USTR”) announced the very first enforcement action under the United States-Mexico-Canada Agreement (“USMCA”) to address Canada’s tariff-rate quotas (“TRQs”) on imported dairy products, which the USTR alleges are in violation of various USMCA Articles to the detriment of U.S. dairy producers. USTR’s announcement follows complaints from U.S. dairy farmers and Members of Congress received earlier this year over Canada’s use of TRQs.  USTR stated in its announcement that it was “disappointed that Canada’s policies have made this first ever enforcement action under the USMCA necessary to ensure compliance with the agreement.”

TRQs are defined in the USMCA as mechanisms that apply “a preferential rate of customs duty to imports of a particular originating good up to a specified quantity (in-quota quantity), and at a different rate to imports of that good that exceed that quantity.” According to the USTR, the U.S. is concerned with Canada’s use of dairy TRQs, particularly with how Canada has reserved a percentage of each dairy TRQ “exclusively for processors” (and in some instances for what Canada describes as “further processors”). For example, Canada’s “Cheeses of All Types” TRQ limits access to 15% for distributors and allocates 85% to processors. In doing so, U.S. dairy producers cannot fully utilize the TRQs and therefore are unable to sell as wide a variety of dairy products to Canada as they otherwise could.

At this time, the enforcement action consists of a request for consultations between the U.S. and Canada to resolve the United States’ concerns. Canada and the U.S. have 15 days to enter into consultations under the USMCA Dispute Settlement rules. If they are unable to resolve the United States’ concerns through consultations, the U.S. may request the establishment of a USMCA dispute settlement panel to further examine the matter. Canada’s published notices to importers on the TRQs which the USTR has identified and taken issue with can be found by searching for them at this link.

Husch Blackwell continues to monitor the USMCA enforcement action regarding Canada’s dairy TRQs. Should you have any questions or concerns regarding the enforcement action, please contact our International Trade and Supply Chain team.

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